A vital backbone to any modern economy, infrastructure is a relatively safe asset. At the same time, western governments are committed to infrastructure development to boost the economy. However, most are unable to fund infrastructure projects and are turning to the private sector for help. With banks withdrawing lending support from the sector to comply with tougher capital requirements rules, there is an opening for institutional investors to participate in this unique asset class.

Opportunities come in many flavours from safe utility, energy and social projects through to higher risk sectors such as ports and telecoms. The market can be accessed by investing directly into projects or via funds through debt or equity. There are also opportunities to co-invest and to create bespoke portfolios. For some investors, a multi-manager approach is more suitable to diversify risk.

Boosting portfolio income

Revenues generated by infrastructure assets are particularly suited to the needs of institutional investors:

Revenues are often inflation-linked, ideal for investors with long-term liabilities.

Cash flows can be amortising, offering enhanced and continuous income over the life of investment rather than a terminal balloon payment typical of fixed-income investments.

Favourable regulatory structures often associated with public services and monopolies.

Infrastructure is generally investment grade. However, its illiquid nature often allows investors to earn higher yields than on similarly rated fixed-income assets.

Locating the most suitable infrastructure investments requires scale, resources, skill and the ability to access opportunities.

Risks

The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.

Where funds are invested in infrastructure, investors may not be able to switch or cash in an investment when they want because infrastructure may not always be readily saleable. If this is the case we may defer a request to switch or cash in units. Investors should also bear in mind that the valuation of real estate is generally a matter of valuers’ opinion rather than fact.